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February 28, 2001                                       Feedback  

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Interest rates cut by 1%-1.5%

BS Bureau

The Union Budget for 2001-02 proposes a major reduction in interest rates on small-saving schemes of post offices, provident fund and general provident fund (GPF) by up to 1.5 per cent with effect from March 1, 2001.

The interest rate on the popular public provident fund (PPF) and National Savings Certificate (NSC) has been reduced by 150 basis points from 11 per cent to 9.5 per cent, while rate on time deposits with post offices has been reduced by 1 per cent.

The cut was expected following the reduction in the bank rate by 50 basis points earlier this month.

The benefits of the reduction in interests on small-saving deposits would be passed to the states, finance minister Yashwant Sinha said in his Budget speech, adding it would not only reduce the states' burden, but also reduce their borrowing costs from such schemes by 100 to 150 basis points.

As part of the efforts to widen the tax base, the limit of exemption from TDS (tax deduction at source) on interest earned on instruments like NSC has been reduced to Rs 2,500 from Rs 5,000 at present.

Similarly, the TDS limit on time deposits with a bank or housing finance company would also come down from Rs 10,000 to Rs 2,500.

The Budget was also expected to kick off pension sector reforms by allowing the entry of private players in the pension funds sector.

However, that did not happen. The finance minister announced that a high-level committee would be constituted to go into the existing schemes and come up with recommendations for a new system.

A new insurance scheme, 'Ashraya Bima Yojana', for workers who lose their jobs will be announced by the four state-owned general insurance companies by June to provide compensation of up to 30 per cent of last drawn annual pay for a period of one year, Sinha said.

The tax concessions on premia paid to Life Insurance Corporation (LIC) for its schemes would also apply to the private sector insurance companies approved by Insurance Regulatory and Development Authority (IRDA).

These companies have recently started offering their products to the public.

Source: Business Standard

The Budget 2001-2002 Special
The Rediff-Business Standard Budget Special

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